Monday, February 28, 2011

Borders’ Bankruptcy Shakes Industry - (www.nytimes.com) After Borders, the 40-year-old retail chain that helped define the age of the book superstore, filed for bankruptcy protection on Wednesday, the struggling book industry was left wondering what was next — and maybe even who was next. The troubles of Borders are rooted in a series of strategic missteps, executive turnover and a failure to understand the digital revolution — problems in many ways of Borders’ own making. But as those in the volatile industry digested the news that most saw coming, they were acutely aware of the bigger picture: that in a fast-evolving bookselling environment there is slim margin for error. “The book retailing industry is very challenging right now,” said Michael Souers, an analyst for Standard & Poor’s. “We’ve had significant transformation. Bookstores have gradually been losing their prominence, and the U.S. market is oversaturated in terms of the number of retail stores. So that trend will likely continue as e-books gain more prevalence in the market.”

Bloomberg's New York City Budget Said to Include Firing of 4,666 Teachers - (www.bloomberg.com) New York Mayor Michael Bloomberg will present a preliminary budget for next fiscal year today that proposes reducing the city’s 80,000 teachers by 6,166, including 4,666 dismissals, administration officials said. An improving economy has helped pour about $2 billion of unanticipated revenue into city coffers, though it’s not enough to avoid personnel cuts, said the officials, who have seen the proposal. In November, Bloomberg said he would eliminate 10,000 of the most-populous U.S. city’s 300,000 workers to close a $2.4 billion deficit in a $67.5 billion spending plan.

Washington can't save our highways - (fortune.cnn.com) Washington talks a good game about transportation infrastructure, but refuses to agree on how to fund it. So let's stop waiting for Washington. Here are two things we all can agree on about America's transportation infrastructure: (1) It is in desperate need of costly repairs, and (2) Our political leaders cannot agree on how to pay for them. President Obama dove into the conversation this week, proposing $556 billion in new infrastructure spending over the next six years. Not only would it include money for road and bridge repair, but also high-speed rail development and the formation of a National Infrastructure Bank that would (hopefully) prevent the next Bridge to Nowhere from being federally funded. It is an important step, considering that the American Society of Civil Engineers estimates that the nation's 5-year infrastructure investment need is approximately $2.2 trillion. Unfortunately, Obama didn't explain how the new spending would be paid for. Increases in transportation infrastructure spending traditionally have been paid for via gas tax increases, but today's GOP orthodoxy is to oppose all new revenue generators (even if this particular one originated with Ronald Reagan). This isn't to say that Republicans don't believe the civil engineers – it's just that they consider their version of fiscal discipline to be more vital.

Jamie Dimon’s ‘Biggest Disaster’ Is Waiting: Simon Johnson - (www.bloomberg.com) Jamie Dimon, chief executive officer of JPMorgan Chase & Co., has harsh words for Fannie Mae and Freddie Mac. They are “the biggest disasters of all time,” Dimon told the Financial Crisis Inquiry Commission last fall, according to his just-released interview. Along with others, Dimon greatly exaggerates the role Fannie and Freddie played in the financial crisis, a theme my MIT colleague, Daron Acemoglu, has written about with great clarity. Too many bankers assert some version of the refrain: Fannie Mae made me do it. As the FCIC’s report makes clear, it was the private sector that led us into the financial crisis by making massive subprime bets and then using complex derivatives deals to magnify the downside risks.

UPDATE: Democrats Flee Wisconsin To Avoid Vote On Union Bill - (www.businessinsider.com) Wisconsin Democrats have "gone into hiding" to avoid a Senate vote on an emergency budget bill that would sharply curtail collective bargaining rights for public employees. Wisconsin police are now trying to round up the truant lawmakers - every single Democrat in the state Senate - who have reportedly left the state, according to local news reports. Republicans need at least one Democrat to be present before they can vote on the bill. Democratic Minority Leader Mark Miller released a statement on behalf of the Democrats, urging Republicans to consider a compromise, the AP reports. The statement does not say where he and his cohorts are hiding. Meanwhile, thousands of protesters have gathered outside of the Senate chamber and in front of the state capitol. Classes have been been canceled in Madison and other school districts across the state as teachers join the demonstrations.

Sunday, February 27, 2011

Banks Push Home Buyers to Put Down More Cash - (online.wsj.com) The down payments demanded by banks to buy homes have ballooned since the housing bust, forcing many people to rethink what they can afford and potentially shrinking the pool of eligible buyers. Last week, the Obama administration called for gradually raising down payments to a minimum of 10% on conventional loans, meaning those that can be bought or guaranteed by mortgage giants Fannie Mae and Freddie Mac. And mortgage data show that private lenders are already pushing sharply higher the required down payments, mainly to mitigate their risk as home prices continue to fall. The median down payment in nine major U.S. cities rose to 22% last year on properties purchased through conventional mortgages, according to an analysis for The Wall Street Journal by real-estate portal Zillow.com.

World Risks ‘Scary’ Tightening as Rates Hobbled, JPMorgan Says - (www.bloomberg.com) Emerging-market central banks are failing to counter rising inflation, risking a “scary” and “synchronized” global monetary-policy tightening as early as next year, JPMorgan Chase & Co. said. Real interest rates in emerging markets remain at “recession lows” because policy makers believe increases would pressure currency pegs to the dollar and risk exacerbating capital inflows, said chief economist Bruce Kasman in an interview in Beijing today. The risk is that emerging markets tighten policy only after inflation leaks into developed economies and the U.S. Federal Reserve reacts, prompting simultaneous interest rate increases across the world after a longer period of “financial excesses,” Kasman said. JPMorgan strategists cut their year-end target for the MSCI Emerging Markets Index to 1,300 from 1,500 yesterday on expectations that accelerating inflation in developing nations will spur tighter monetary policy. “The pressures are building and we don’t see policy makers addressing them in a serious way,” New York-based Kasman said. “A more synchronized adjustment globally is kind of a scary prospect down the road for how this stuff ultimately unwinds.”

Banks Go Straight to Public Borrowers - (online.wsj.com) Banks are setting aside billions of dollars to do something that until now was rarely heard of: making big loans to cities, states, schools and other public borrowers that otherwise might have turned to the bond market. When Riverside, Calif., was ironing out a bond offering recently to expand its performing-arts center, several banks pitched a radical idea: Why not take out a loan instead? The city scrapped the bond plan and borrowed $25 million from City National Bank in Los Angeles. "This was a method we'd never even heard of before," says Scott Catlett, the city's assistant finance director. He says Riverside now intends to seek a bank loan for a conference center that it had planned to build with bonds. It could find a robust reception for its business. Banks are aggressively courting municipal borrowers with conventional loans for capital projects.

Food Riots Threaten Latin America on Surging Commodities - (www.bloomberg.com) Countries in Latin America and Africa, including Bolivia and Mozambique, are most at risk of food riots as prices advance, the United Nations reported. The past month’s protests in North Africa and the Middle East were partly linked to agriculture costs. World food prices climbed to a record in January, the UN said on Feb. 3. Food prices are rising to “dangerous levels and threaten tens of millions of poor people” globally, World Bank President Robert Zoellick said yesterday. “The low-income food deficit countries are on the front line of the current surge in world prices,”Abdolreza Abbassian, a senior economist at the UN Food and Agriculture Organization inRome, said in an e-mail Feb. 14. Other countries where expensive food imports may become a “major burden” include Uganda, Mali, Niger and Somalia in Africa, Kyrgyzstan and Tajikistan in Asia and Honduras, Guatemala, and Haiti in Latin America, he said.

Saturday, February 26, 2011

Walker takes broad swipe at public employee unions - (www.madison.com) Saying those who didn't see it coming must have been in a "coma," Gov. Scott Walker unveiled sweeping legislation that would severely curtail public employee rights and dramatically change the way Wisconsin negotiates with unions going forward. Officials alerted the Wisconsin State Employees Union on Friday that expired collective bargaining agreements would be canceled March 13. State unions have been operating under the terms of their previous contracts, an arrangement that can be terminated with 30 days' notice. The news came on the same day the governor unveiled a budget repair bill that would remove nearly all collective bargaining rights for nearly all public employees in the state and make it easier for employers to fire workers that engage in some form of labor unrest. WSEU executive director Marty Beil, whose union represents about 22,000 state employees, did not return calls Friday. But AFT-Wisconsin President Bryan Kennedy said Walker's move is part of a nationwide effort to kill labor unions. "It is a power grab, a coordinated effort to kill the union here," said Kennedy, whose organization represents 17,000 state employees. "This is essentially the governor saying, 'Sit down, shut up and do what you are told.'"

Look at how ridiculously ass backwards that comment is from AFT-Wisconsin President Bryan Kennedy.

Detroit Will PAY You To Take One Of These 100 Abandoned Homes - (www.businessinsider.com) Mayor Dave Bing is trying to save Detroit by offering incentives to lure residents back to abandoned neighborhoods. One program offers $150,000 in housing renovation money and requiring only $1,000 down to police officers who are willing to relocate to the city. Another offers college graduates $2,500 to rent and $20,000 forgivable loan to buy properties.Potential home buyers can choose from plenty of cheap or free homes, especially in the blighted neighborhoods of Woodward Ave. and Brush Park.

Wisconsin Laborers Rally Against Gov. Walker's "Union-Busting" Bill - (www.fox21online.com) "We have people who are working in the courthouse. We have the snowplow drivers. We have people who do just about every kind of work you can imagine,” AFSCME Council 40 Staff Representative James Mattson said. But Senator Bob Jauch (D-Poplar) has a warning. "In 5 days, this legislature and governor could eliminate 60 years of collective bargaining history,” Jauch said. It is possible, Senator Bob Jauch says, through a new bill from Republican Governor Scott Walker. If it becomes law would forbid most contract discussion and punish resistance to the change. "They would have no rights to deal with these issues as they have in the past,” Mattson said. Milroy says Gov. Walker will not sit down for a discussion with union officials and that his bill would hurt Wisconsin families and communities. "For a lot of people this is going to mean a 5-10% cut in their take-home pay,” Rep. Nick Milroy (D-Superior) said. It's time to send senator Bob Jauch and Rep. Nick Milroy packing. Taxpayers are fed up. They are sick of extortion by unions that give union workers wages and benefits most taxpayers will never see.

Experts: Walker's budget bill would likely drive workers away - (www.journaltimes.com) The bill proposed by Gov. Scott Walker to restrict collective bargaining for most public employees would likely drive workers from the public sector and the state, according to legal and economic experts. Those experts said the bill would keep public employee wages down, create contentious and protest-filled union-employer relations and cause confusion about labor issues, all culminating in public employees eventually leaving for private sector jobs or work in other states. "People will leave the public sector and as a whole the state of Wisconsin will be looked at as a place where there is less stability and, frankly, as a more backwards state," said Marianne Robbins, a Milwaukee-area lawyer specializing in public and private sector labor law. Employee groups could bargain for wages but any wage increases would not be able to exceed the increase in the Consumer Price Index unless approved in a referendum. That means there likely won't be decent-sized wage increases, if there are increases at all, said Robbins and Andrew Reschovsky, professor of public affairs and applied economics at the University of Wisconsin-Madison. "So some (public workers) with options will think about taking jobs elsewhere," said Reschovsky, who is among the University of Wisconsin System staff that would be affected by Walker's bill. "Retirement will look better to some state workers. The most experienced will leave and there could be real costs in lost experience." Departing workers might look outside Wisconsin, leaving the state with less experienced and lower quality workers, Reschovsky said, especially when it comes to new school teachers and UW System faculty who can take their research and business-growing efforts elsewhere.

Egypt is considering cancelling out all of its trades - (www.businessinsider.com) Egyptian regulators, confronted by investors angry about stock losses and a closed exchange, said they will weigh the cancellation of transactions that led to the biggest tumble in the EGX 100 Index in more than two years. Bourse chairman Khaled Seyam said the exchange won’t cancel Jan. 27 transactions because the move would be “illegal,” Al Arabiya television reported today. Individual equity holders, who accounted for 48 percent of all trading on the Egyptian Exchange last year, jammed into a meeting in Cairo with bourse Vice Chairman Mohamed Farid Saleh yesterday, demanding changes in regulation and management before the market resumes operations Feb. 20. The exchange shut after the EGX 100 plunged 14 percent on Jan. 27. Al Arabiya also reported the exchange won’t open Feb. 20.

Friday, February 25, 2011

Chicago finances are even worse than you thought! - (www.businessinsider.com) Just when Chicago's fiscal problems looked they couldn't get much worse, a new study shows that the city now faces nearly $23 billion in unfunded pension liabilities, the Chicago Tribune reports. Chicago's unfunded pension obligation has increased 600% since 2000, according to the report, released by the city's Civic Federation. When combined with state pension debt, unfunded liabilities on public employee pensions would now cost each Chicago resident more than $11,934. Much of the blame rests with Illinois' pension code, which allows local governments to avoid paying their contributions to public employee pension plans. This problem is exacerbated, the report says, as the number of retirees exceeds the number of active public employees.

Geithner Quietly Tells Obama Debt Expense to Increase to Record - (www.bloomberg.com) Barack Obama may lose the advantage of low borrowing costs as the U.S. Treasury Department says what it pays to service the national debt is poised to triple amid record budget deficits. Interest expense will rise to 3.1 percent of gross domestic product by 2016, from 1.3 percent in 2010 with the government forecast to run cumulative deficits of more than $4 trillion through the end of 2015, according to page 23 of a 24-pagepresentation made to a 13-member committee of bond dealers and investors that meet quarterly with Treasury officials. While some of the lowest borrowing costs on record have helped the economy recover from its worst financial crisis since the Great Depression, bond yields are now rising as growth resumes. Net interest expense will triple to an all-time high of $554 billion in 2015 from $185 billion in 2010, according to the Obama administration’s adjusted 2011 budget. The amount of marketable U.S. government debt outstanding has risen to $8.96 trillion from $5.8 trillion at the end of 2008, according to the Treasury Department. Debt-service costs will climb to 82 percent of the $757 billion shortfall projected for 2016 from about 12 percent in last year’s deficit, according to the budget projections. That compares with 69 percent for Portugal, whose bonds have plummeted on speculation it may need to be bailed out by the European Union and International Monetary Fund.

States Aim Ax at Health Cost of Retirement - (www.nytimes.com)Governors and mayors facing large deficits have set their sights on a relatively new target — the soaring expense of health benefits for millions of retired state and local workers. As they contend with growing budget deficits and higher pension costs, some mayors are complaining that their outlays for retiree health benefits are rising by 20 percent a year — a result of the wave of retirements of baby boomers and longer life expectancies on top of the double-digit rate of health care inflation. The nation’s governors face a daunting $555 billion in unfunded liabilities to finance retiree health coverage. The Pew Center on the Statescalculated those long-term obligations last year, saying New Jersey had the largest amount, $68.9 billion, with California second, at $62.5 billion.

Fannie, Freddie Taxpayer Tab Soars Again - (www.bloomberg.com) Taxpayer aid to Fannie Mae and Freddie Mac will reach $224 billion by the end of 2012, of which $55 billion will be returned in dividends to the U.S. Treasury, according to President Barack Obama’s 2012 budget. By 2013, the government-owned mortgage companies will be profitable enough to “pay part, but not all” of their dividend payments from earnings, according to the budget released today. The budget’s projected cost to taxpayers for rescuing Fannie Mae and Freddie Mac -- $169 billion after subtracting the dividends -- is at the low end of a range of estimates from the Federal Housing Finance Agency, the companies’ chief regulator. The agency’s analysis, issued in October, predicted a best- case scenario of $221 billion in aid, or $142 billion after dividends, and a worst-case scenario of $363 billion, or $259 billion after dividends.